Case Law Details
ACIT Vs Himanshu Jayanti Lal Kamdar (ITAT Ahmedabad)
The central controversy involved in the present case is towards determination of total cost of acquisition of new house for the purposes of claim of deduction under s.54F of the Act while computing LTCG on sale of plot. The assessee has also included the cost incurred towards vacating the new property from tenant amounting to Rs.35 Lakhs as well as certain costs incurred towards repairs and renovation of the new house as part of cost of acquisition of new house in addition to original cost incurred for its purchase. The original cost of acquisition of the new house was thus increased by the assessee towards cost of removal of encumbrances and cost of repairs and renovation of new house.
As regards the cost of removal of encumbrances, we straightway find ourselves in complete agreement with the observations made by the CIT(A) dealing with issue. The CIT(A) has objectively analyzed the facts existing in the case with reference to the abandonment of tenancy right as noted in earlier paras and has come to the rightful conclusion in the given set of facts. As pointed out, the purchase agreement itself specifies the existence of encumbrance. As further noted, the assessee has also demonstrated that the original cost of acquisition was quite lower vis-à-vis fair market value having regard to the embedded encumbrance. Suffice it to say, that the CIT(A) has drawn conclusions in favour of the assessee based on tell-tale evidences. Therefore, we do not see any reason to upset such conclusions of CIT(A). The order of the CIT(A) is thus well founded with regard to the cost incurred for removal of the tenancy rights. The objection of the Revenue on this score thus cannot be sustained and hence dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the Revenue against the order of the CIT(A)-5, Ahmedabad (‘CIT(A)’ in short), dated 29.01.2015 arising in the assessment order dated 11.03.2013 passed by the Assessing Officer (AO) u/s.143(3) of the Income Tax Act, 1961; (the Act) concerning assessment year 2010-11.
2. As per its ground of appeal, the Revenue has challenged the action of the CIT(A) in reversing the additions made to the long term capital gains on account of cost of acquisition/cost of improvement.
3. Briefly stated, the assessee sold a plot of land at Ranip, Ahmedabad on 08.03.2010 for a consideration of Rs.95 Lakhs. The assessee had earlier purchased the aforesaid plot on 06.01.2004 for a consideration of Rs.1,06,530/-. The assessee also purchased a new residential house at Nagar Sheth Vanda, Gheekanta, Ahmedabad for which payment of Rs.84,13,719/- was shown by the assessee towards cost of acquisition. While computing long term capital gains (LTCG) arising on sale of plot at Ranip, the assessee claimed deduction under s.54F qua the new residential house acquired. In the course of scrutiny assessment, however, Assessing Officer disputed the cost of acquisition/cost of improvement of the new residential house. The AO noted that the original cost of purchase of house stands at Rs. 19,08,290/-. It was observed by the AO that the assessee has in addition to the original cost of purchase, the assessee has also claimed Rs.35 Lakhs on account of purported payment made to tenant (Artiben J. Vaidhya) towards cost of vacating the property as part of cost of acquisition of new property. The AO further observed that the assessee has made another claim of Rs.30,05,429/- towards cost of repairs and renovation of new residential house as part of cost of acquisition for the purposes of deduction under s.54F of the Act. The AO disputed the cost claimed as part of acquisition of new residential house with regard to both payments made towards vacating the property (Rs.35 Lakhs) as well as repair and renovation costs (by 30.05 Lakhs) claimed to be incurred by the assessee for making it habitable.
3.1 With reference to the payment of Rs.35 Lakhs made to tenant for vacating the new residential house, the AO observed that the aforesaid payment was made in cash which is not a believable proposition and the assessee could not even produce any PAN or any other assessment details in respect of the purported tenant, namely Ms. Artiben J. Vaidhya. The AO thus took a view that such cost allegedly incurred on account of vacating the new property is not a legitimate expenditure for determination of cost of acquisition of new house.
3.2 With reference to the repairs and renovation expenses of Rs.30,05,429/- claimed to be incurred by the assessee and thus claimed to be part of cost of acquisition of new house, the AO observed that the expenditure claimed is very unreasonable having regard to the original cost of the property of Rs.19,08,290/-. It was further observed that almost all the payments have been made in cash only and the assessee is showing staggering outstanding payable as on 31.03.2011 at Rs.14,30,638/-. The AO accordingly proceeded to estimate the cost of possible renovation at 20% of the claim so made. Accordingly, the AO worked out the cost of repairs, renovation etc. at Rs.6,01,085/- and disallowed the balance amount of Rs.24,04,344/- out of total expenses claimed towards repairs etc. at Rs.30,05,429/-. The AO accordingly revised the entitlement towards deduction under s.54F of the Act as per cost of acquisition determined by him.
4. Aggrieved, the assessee preferred the appeal before the CIT(A).
4.1 The CIT(A) revisited the facts concerning the aforesaid two items of cost of acquisition/cost of improvement and found merit in the claim of assessee. As regards payment made to tenant forming part of the cost of acquisition amounting to Rs.35 Lakhs, the CIT(A) observed few salient features, namely;
(i) The purchase deed for the purchase of new house has provided for the fact that the new house is occupied by the tenants and liability to vacate the tenant will be on purchaser; (ii) The assessee filed legal suit for abandonment of tenancy right by tenants in favour of the assessee; (iii) The assessee negotiated lower price with the seller due to existing encumbrance of tenancy; (iv) Payment in cash is irrelevant and is not debarred more so, on account of the fact that the payment is evidenced by detailed settlement agreement executed in writing by the tenant in favour of the assessee for surrender of tenancy right for specified consideration (Rs.35 Lakhs) before notary. The CIT(A) also took note of the fact that the market value of the new property was considerably higher than the original cost of acquisition by the assessee owing to tenancy encumbrance. The CIT(A) also simultaneously observed that the tenant was holding legal as well as illegal possession and annual rent of Rs.582/- was formally paid by the tenant for occupation of the property. On the conspectus of the facts and circumstances, the CIT(A) found that the cost incurred by the assessee to cure the encumbrances and to abandon tenancy right do form part of the cost of acquisition for the purposes of Section 54F of the Act.
4.2 With reference to another expense towards repairs and renovation amounting to Rs.30,05,429/-, the CIT(A) observed that the AO has not pointed out any defect in the supporting bills towards labour contractor, electrical contractor, RCC contractor bills, colour contractor bills, plumbing contractor bills etc. The CIT(A), thus, was of the view that entire expenditure is supportable by evidence and there is no case for disallowing a portion of the expenditure claimed. The CIT(A) accordingly admitted the entire claim of Rs.30,05,429/- as against Rs.6,01,085/- determined by AO.
5. The Revenue in the present appeal has challenged the order of the CIT(A) on both counts.
5.1 Learned DR for the Revenue relied upon the order of the AO and submitted that the CIT(A) was not correct in granting wholesome relief to the assessee when the cost incurred for tenancy rights, if any, is not proved as noted by the AO. The learned DR similarly pointed out that the CIT(A) has merely relied upon unvouched expenditure claimed to be incurred by the assessee towards repairs and renovation and omitted to take note of the vital fact that the payment is claimed to have been made in cash which is not verifiable and majority of the payment (Rs.14,30,638/-) is claimed to be outstanding which is not believable. Learned DR submitted that it is not known as to when the purported outstanding liability have been discharged and from what resources. Learned DR accordingly submitted that the CIT(A) has misdirected itself in law and on facts in accepting the claim of the assessee in a cosmetic manner disregarding factual observations made by the AO.
6. We have carefully considered the rival submissions and perused the orders of the authorities below and material placed on record. The central controversy involved in the present case is towards determination of total cost of acquisition of new house for the purposes of claim of deduction under s.54F of the Act while computing LTCG on sale of plot. The assessee has also included the cost incurred towards vacating the new property from tenant amounting to Rs.35 Lakhs as well as certain costs incurred towards repairs and renovation of the new house as part of cost of acquisition of new house in addition to original cost incurred for its purchase. The original cost of acquisition of the new house was thus increased by the assessee towards cost of removal of encumbrances and cost of repairs and renovation of new house.
6.1 As regards the cost of removal of encumbrances, we straightway find ourselves in complete agreement with the observations made by the CIT(A) dealing with issue. The CIT(A) has objectively analyzed the facts existing in the case with reference to the abandonment of tenancy right as noted in earlier paras and has come to the rightful conclusion in the given set of facts. As pointed out, the purchase agreement itself specifies the existence of encumbrance. As further noted, the assessee has also demonstrated that the original cost of acquisition was quite lower vis-à-vis fair market value having regard to the embedded encumbrance. Suffice it to say, that the CIT(A) has drawn conclusions in favour of the assessee based on tell-tale evidences. Therefore, we do not see any reason to upset such conclusions of CIT(A). The order of the CIT(A) is thus well founded with regard to the cost incurred for removal of the tenancy rights. The objection of the Revenue on this score thus cannot be sustained and hence dismissed.
6.2 With reference to the repairs and renovation expenses, however, we find some merits in the case made out by the Revenue. As against the total costs claimed to be incurred by the assessee amounting to Rs.30,05,429/-, the outstanding has been shown at Rs.14,30,638/- which is nearly 50% of the total claim. Most of the payments are admittedly made in cash and, at times, based on simple vouchers. Such huge outstanding and cash payments enjoin greater onus on the assessee. The assessee has not discharged the onus fully towards incurring of such expenses more particularly the whereabouts of substantial outstanding payments as noted above. The CIT(A) has totally omitted to address this vital aspect. In these set of facts, the AO has fairly admitted the claim to the extent of 20% on estimated basis which stands at Rs.6,01,085/- on a property of Rs.19.08 Lakhs. The CIT(A) has cursorily dealt with the issue and has blamed the AO for non verification which he could have done itself if he found the AO wanting on this score. In the absence of proper evidences before us towards identification of the parties involved and actual work carried out, we are unable to comment any further. A closer look at cash book filed before us unfolds quite abnormal features. The assessee has shown huge opening balances in cash book (Rs.16.68 Lakhs as on 01.04.2009) against which meager household expenses of Rs.15000/- or thereabout claimed. The cash in hand has gone up further and at one point of time it is nearly Rs.40 Lakhs. Coupled with this, the pattern of cash deposits and cash withdrawals as reflected in the cash book placed before us does not inspire much confidence. The profile of the assessee and the cost of purchase of the residential house do not lend credence to the claim of the assessee for such huge repairs and renovation. In our view, the assessee could not discharge the onus for such claim as required in the given facts. Therefore, in our view, the CIT(A) was not justified in accepting the claim of the assessee summarily. The AO, on the other hand, has rightly resorted to estimations at certain percentage which in our view is justified in keeping with the original cost of acquisition. Thus, the order of the AO as regards estimation of repairs and renovation costs deserves to be approved in supersession to the order of the CIT(A). The relief granted by the CIT(A) towards cost of repairs, renovation etc. is thus set aside and order of the AO is restored on this score.
7. In the result, the appeal of the Revenue is partly allowed.
This Order pronounced in Open Court on 05/06/2018
